Category Archives: Start-up data

Venture ideas

Cisco’s A&D

For those who read my book, it will be clear there is no typo in my title. It is not R&D but really, A&D, acquisition and development. Cisco has been known to consider M&A as the best source of innovations for its future development. So I was not surprised to see that Cisco did two acquisitions recently: ScanSafe, Starent. But what is crazy with them is that between reading this and writing this post, they had done another one (which is not included in my numbers, sorry!): DVN. This gave me the impetus to look at how A&D has developed since I published Start-Up. So here are the numbers (put in parallel with the growth of its employees and sales).

or if you prefer visual info:

Final piece of info: where are the acquistions coming from? No surprise, mostly Silicon Valley:

Women and High-Tech Entrepreneurship.

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Here is my third contribution to Créateurs, the Geneva newsletter, where I have been asked to write short articles about famous success stories. After Adobe and Genentech, here are some thoughts about women and high-tech entrepreneurship.

Women Entrepreneurs? Carol Bartz, Sandy Kurtzig…

… but also Ann Winblad, Catarina Fake, Kim Polese, Candice Carpenter, Mena Trott.
The list may go on but would not be much longer. Why so few women in high-tech entrepreneurship? And even worse, why are they so little known? The answer is simple: the situation is just an illustration of their position in science, in high-level positions in companies or in society more generally. A few anecdotes will show however that they have nothing to prove their male counterparts.

Sandy Kurtzig is a school dropout. She stopped the PhD program she was following at Stanford University and joined General Electric. She discovered there that computer science must help in improving manufacturing (such as in inventory management or logistics) and left again to found Ask Computer in 1972 with $2’000 from her own savings. “No venture capitalist would have given me money in the beginning. First software was seen of no value and then I was a woman.” She declined an acquisition offer from Hewlett-Packard in 1976 and in 1981 Ask Computer went public on Nasdaq. (The reader should remember that Apple had gone public in December 1980 and Logitech was founded in January 1981.) When she left Ask in 1989, the company had $189M in sales. Her advice to entrepreneurs? Believe in yourself, hire the right people and share success. Do not be afraid of making mistakes.

Carol Bartz also began her career in a big company: 3M is the inventor of the famous post-it. She heard there: “you are a woman, what are you doing here?” She left the company when he understood she would not be promoted because she was a woman. A few years later, she moved to Silicon Valley. “Even in this region, being a woman is belonging to a minority.” Her comment will not prevent her from becoming CEO of Autodesk in 1992. (Autodesk is the world leader for 3D software for architecture and mechanical design with $2B in sales in 2008.) That same year, in 1992, she was diagnosed with cancer. She will have chemotherapy while managing her company. She succeeded twice. “With private life and work, you do not have time to wonder if you are all right or not.” Work was a distraction and the leadership she showed was a strong motivation for her colleagues.

She is also fighting for the position of women in science: “I sincerely believe that women are dissuaded [from doing science]. They are told it is not important. Another female entrepreneur, Ann Winblad adds: “The daughter of a friend of mine is worried about appearing too nerdy if she invests in science. However some of the successful women – myself, Carol Bartz – all of us were math whizzes and we really had fun teenage lives as well as adult lives and have been very successful. The problem is that we need role models like Steve Jobs with this inspirational product, the iPod. Something is getting lost in the message because not many say I want to be like them.”

In January 2009, Carol Bartz became Yahoo’s CEO. The task may not be easy. Should we listen to Caratina Fake, founder of Flickr: « There is a lot of institutionalized sexism working against women in business and I think that people aren’t even aware that it’s there. » This post is unfortunately too short to celebrate women as entrepreneurs- Those who succeeded had to be exceptional and those who try also, without any doubt. The barriers entrepreneurs face are amplified for women. I will just conclude by copying the poet in saying that, in the start-up world maybe “Women are the Future of Men”.

To know more:
Carol Bartz in “Betting It All” by Michael Malone (Wiley, 2002).
Sandy Kurtzig in “In the Company of Giants” by R. Dev Jager and R. Ortiz (McGraw Hill, 1997)

Next article: A European in Silicon Valley, Aart de Geus.

The Anatomy of an Entrepreneur

Bob Swanson & Herbert Boyer: Genentech

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Here is my second contribution to Créateurs, the Geneva newsletter, where I have been asked to write short articles about famous success stories. I began last quarter with Adobe and its founders John Warnock and Charles Geschke, here is now Bob Swanson, Herbert Boyer, founders of Genentech.

Bob Swanson and Herbert Boyer: Genentech

In the start-up world, biotechnologies do not seem to belong to the same world: they seem to always be reserved to high-caliber scientists not to say Nobel prize winners that investors would back with their money. So… where is the entrepreneur?

The story about the Genentech beginnings is probably the best illustration that a visionary entrepreneur is also necessary in biotechnologies. Much more than just a start-up, it is an entire industry that Bob Swanson founded.

The legend says that Bob Swanson, a 29-year old venture capitalist, met Herbert Boyer, a professor at the University of California in San Francisco (UCSF). The money of Bob and the ideas of Herbert made possible the creation of Genentech in 1976, followed by its IPO in 1980. The story deserves however a little more attention. Bob Swanson was not really an investor. He is an entrepreneur. he has been hired by Kleiner and Perkins (KP) who had understood that the real value of a venture capital firm is to create company and not only to fund them. They understood this after the success of Tandem and Jimmy Treybig whom they financed from day 1 in 1974. (See KP first fund).

Bob Swanson is fascinated by the potential of biology and genetics. (He has a BS in chemistry from MIT and an MBA). After helping KP for one their portfolio company, he leaves the fund to dedicate himself to his new passion. He meets many professors in the Bay Area but all of them explain him that their work is about science, leading edge science for sure and very far from commercial applications.

Herbert Boyer is not a typical professor. Together with Stanley Cohen, he is the inventor of a patented technology, which was not common in the academic world of the seventies. Known as the Cohen-Boyer patent, it describes how to manipulate the DNA and it is so fundamental that any new technology in the field needs to use this patent, which means obtaining a license on the technology and paying royalties to its owners, Stanford University and UCSF. In total, more than $250M was generated in royalties over 20 years.

The beginnings of Genentech are a combination of history and legend. Swanson calls Boyer who tells him he is very busy but he agrees on a 10-minute talk on a Friday afternoon. Swanson is obsessed about one single thing: the applications of research. Boyer replies that there is certainly some potential but it will require another 10 years of research. “Why, why, why?” Swanson does not stop saying to the point that Boyer finally concludes “why not? May be it can be faster.” The 10-minute talk has become a 3-hour discussion. Genentech is born, at least in two minds full of beer!

They still have to convince the skeptics. Among them, the potential investors. A week later, Tom Perkins meets with the two men and he remembers: “the technical risks were huge. I was very skeptical. I did not know anything in biology.” Kleiner is however very impressed by the energy of Swanson and the expertise of Boyer. He decides to try, step by step in order to diminish the risks and minimize the initial investment. Kleiner invests $100’000 which will last nine months.

The rest is History. Genentech synthesizes insulin in 1978 and growth hormone in 1979. Genentech also raised $10M with private investors before going public on Nasdaq in 1980. For the first time, a biotech company goes public with no revenue and its first product is not approved yet (it will be in 1985 only). In 1990, Roche and Genentech will sign a strategic partnership which makes the Swiss company its major shareholder. In 2009, Roche acquired all the remaining shares of Genentech.

Swanson was not an investor, but a visionary entrepreneur. Boyer was not a professor in his ivory tower. They were also lucky to have the best of mentors, Tom Kleiner. A lot of energy and passion, great ideas, some money. It is an almost accidental meeting which is responsible for the growth of a industry worth tens of billions of dollars.

Icing on the cake, the Genentech capitalization table at its IPO:

Pour en savoir plus:

Internet Archive:
http://www.archive.org/search.php?query=genentech

The Genentech web site:
http://www.gene.com

Next quarter: Women entrepreneurs, Carol Batz and Sandy Kurtzig

Index Ventures, Minsh, Poken and others

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Last Friday, I organized “venture ideas @ EPFL” with Jordi Montserrat from venturelab. We had the opportunity to have great entrepreneurs from Minsh, Poken, Basisnote and the 20 winners of the ventureleaders program.

Last but not least, Neil Rimer, founder and general partner of Index Ventures shared his thoughts about Thinking Bigger.

More on the EPFL’s venture ideas page and the past events.

A success story: Adobe Systems – John Warnock and Charles Geschke

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Créateurs, a local newsletter asked me to write short articles about famous success stories. I decided to begin with Adobe and its founders John Warnock and Charles Geschke. You will find the full text below as well as the usual data I like to give about start-ups: the capitalisation table of the company at its IPO and how shareholding evolved from foundation to public offering. Here is the article you may found in french in the Newsletter.

John Warnock and Charles Geschke: Adobe

Start-ups are very often associated to their founders. Entrepreneurs such as Steve Jobs or Bill Gates are obviously linked to the company they created. John Warnock and Charles Geschke may be less famous but their story is as fascinating.

Without the profile of the atypical entrepreneur (they are not “school dropouts” who launched their venture in their twenties), Warnock and Geschke founded Adobe Systems in 1982 when they were more than 40-year-old. Adobe is famous for some of the most popular software worldwide such as Acrobat and Photoshop.

From the printer to the printing protocol
It all began in the 70’s, at the renowned Palo Alto Research Park of Xerox, the vendor of copy machines. The two engineers are more and more frustrated. Xerox may have enabled the development of the computer mouse, word processing, email or Ethernet, but it has been incapable of transforming them in commercial products. Warnock and Geschke cannot convince their management of the potential of their research. “Part of it was fear and misunderstanding” but they also admit that “in fairness to the management, I think we as researchers were a little naïve about what it would take to get these things from conceptual operating prototypes all the way to full-production, supportable products. But we sort of hoped that they would hire the people who could do that.”

They left Xerox in 1982 and raised $2.5M to develop their project: high quality printers and a system which connect them to computer networks. When they met potential customers (Apple, Dec), they discovered that nobody is really interested. Steve Jobs explains to them that he needs their printer protocol, Postscript, for the Macintosh he is developing. They immediately change their business plan. Adobe became a software company with the success we all know.

Some good advice
Their vision of what is an entrepreneur is enlightening. It was more an accident than a destiny. But today their advice is worth reading.

You should always be flexible. You should try and explore many solutions, test them with customers and abandon the wrong ones very fast. They have the same views on the personality of entrepreneurs: “99% of founders fail because they cannot change and want to control too much”.

Passion, risk taking and self-confidence seem to be the critical strengths of entrepreneurs combined with intelligence and hard work. “But this is not sufficient. Luck also plays a major role.

When their age and experience is mentioned, Geschke adds that “I don’t think there’s any mystery in running a business. I think it helped that we were in our 40s, that we had worked for a variety of organizations. We had worked in other companies, but tried to leave their bad ideas as proprietary to them. We tried to pick the best things that we saw.” What is essential is to have a vision of what you want to do. “I am not a hunter, never have fired a gun, but I’m told that if you want to shoot a duck, you have to shoot where the duck is going to be, not where the duck is. It’s the same with introducing technology: if you’re only focused on the
market today, by the time you introduce your solution to that problem, there’ll probably be several others already entrenched.”

The ingredients of success
From the initial frustration which is at the origin of their departure from Xerox to the success of Adobe, the lessons are many. Never be a one-product company; technology cannot be simply transferred, you need to add brain power, hire good professionals; and as founders, you need to have “the intellectual capability, inherent honesty, ethical behavior and principles by which we lead [your] personal and business lives.”

In a few sentences, the ingredients of success are numerous, complex as well as simple and probably common to all great entrepreneurs.

To know more about Adobe:
The Revolutionaries: www.thetech.org/exhibits/online/revolution
Adobe Systems, Computer History Museum: www.computerhistory.org
Founders at Work, J. Livingston, Apress (2007)
In the company of Giants, R. Jager and R. Ortiz, Mcgraw-Hill (1997)

Next Article: Bob Swanson: Genentech

Now the cap. table in 1986

and the shareholding structure from 1982 to 1986:

Sharing the Wealth in a Technology Startup: How Much Stock is Enough?

About Kleiner Perkins first fund (episode 1)

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As I mentioned in my previous post about returns of venture capital, I was lucky enough to see the performances of Kleiner Perkins first fund (launched in 1972). Here is the slide I discovered in mid-December.

I was extremely surprised to find such data. They are usually difficult, not to say impossible to get. I asked the author where he got them. He thought he had read them from a book by a Kleiner Perkins partner. I contacted him and he replied: “Not possible that it came from me. I don’t have such information. Not sure I have ever seen the returns for KPCB 1. I don’t know where the information could have come from.” Too bad.

I also try to “measure the bars” and rebuild what it could have meant in terms of numbers. Here are my measures.

A couple of comments (if we admit all this is true):
– Genentech and Tandem were two home runs (out of 17 deals).
– Even if these two had not worked, the fund value would be $17.8M, i.e. a 2.8x multiple. This would have been a decent return compared to even the best VC funds…

But is this true? You will have to wait for episode 2!

Equity split in start-ups

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Following a few case studies I posted earlier this year (Kelkoo, Skype, mysql), here is a more generic analysis about the process of equity splitting. The document is a pdf file I have used a number of times with students, entrepreneurs and I think it is helpful even if not new. At the end, there are also cap tables of other famous and less famous start-ups.

From the inception where a few founders share the initial equity between them to the exit (IPO or M&A) through a possible number of financing events, shares of a start-ups will be shared, distributed among founders, employees and investors. It is one of the most important decisions in a company’s life and should be handled with care.